Child benefit chaos for divorced couples

New partners of divorced parents face losing part of their salary under
changes to the child benefit system if they earn over £50,000, even if the
children are not theirs, accountants at Deloitte have warned.

HM Revenue & Customs will next week write to taxpayers who could be affected by the reform, which will see gradual cuts in child benefit to families in which one parent earns between £50,000 and £60,000. Anyone earning over £60,000 will lose the money entirely.

Rather than simply pay people less, the scheme that the Government will introduce will require individuals to pay back the money by filling out a self-assessment tax return. This “clawback” system will result in an estimated 500,000 people having to fill out self-assessment forms for the first time.

Patricia Mock, a tax director in Deloitte’s private client services division, said that the accountancy firm has been examining how the “clawback” system will actually work. She said that the “complicated” system - which starts on January 7 - will throw up some “unexpected results” when people try to repay the money, particularly if couples break up.

Ms Mock said: “If you have a standard family with 2.4 children and two married parents all living together then the system is reasonably straightforward.

“But it can get really bizarre. Take that straightforward family. If the parents get divorced and the children live with the mother who has a new partner, and that partner is the higher earner, then he gets [to pay] the clawback even though they are not his children.”

Conversely, if an estranged father is claiming child benefit for children who live with their mother and this father has a new partner – who happens to earn more than him – then this partner may be liable to pay the money back if they earn over the threshold.

Ms Mock said: “Part of me thinks we are just making up really complicated scenarios for amusement’s sake but it will happen.”

There were 119,610 divorces in the UK last year, according to the Ministry of Justice, suggesting that the outcomes predicted by Deloitte could become commonplace.

Meanwhile Cathy Jamieson, Labour’s shadow Treasury minister, said that the policy is in chaos.

“With just a few weeks until hundreds of thousands of parents lose every penny of their child benefit it is becoming ever clearer that David Cameron and George Osborne simply haven’t thought this policy through.

“The chaotic way it is being implemented looks set to be yet another example of this Government’s incompetence,” said Ms Jamieson.

Ms Mock said that people appear to be unaware that the cut is coming into force at the start of January.

“Once these letters start to go out we are going to get a lot of questions from people. It feels a very odd way of doing things. It is only when you sit down and think your way through all the permutations that you start to realise how complicated it is,” she said.

A spokesman for HMRC said that everything is under control: "Letters explaining the new child benefit rules are ready to be sent and will be issued in batches from next week, on schedule and according to plan. There are no delays, and plenty of time for those affected to consider their options and make an informed choice in time for the 7 January rule change.

"We will also launch a section on our website designed specifically to help taxpayers with the new arrangements."

He confirmed that new partners could be liable for the charge following a divorce.